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> Posted by Hannah Sherman, Project Associate, CFI
In recent years mobile technology has played an increasingly important role in improving financial inclusion. And though Africa gets all the press, right now in Latin America mobile money services are growing faster than in any other region in the world.
There are currently 37 mobile money services operating in the 19 countries in the region, with nearly 15 million registered mobile money accounts. People in Latin America use the services somewhat differently from those in East Africa – more than 25 percent of all mobile money transactions in Latin America were third-party transactions like bill payments and merchant payments, over four times more than in East Africa, where person-to-person transfers predominate.
Despite high mobile penetration throughout the region, it becomes quickly apparent when looking at the Latin American market that there is no single approach to building financial inclusion via mobile money that will be effective across all countries. Although mobile penetration is high throughout Latin America, Pyramid Research found that there are three separate and distinct categories of countries to consider: those with an underdeveloped financial system; those with an emerging financial system; and those with a developed financial system. Each category requires a different mobile financial inclusion strategy. Given their high proportion of under- and unbanked people, countries with an underdeveloped financial system, such as Bolivia, Honduras, and Paraguay stand to benefit the most.
> Posted by Barney de Jongh, Acting Group Head of MFS, Ooredoo Group
It’s amusing to see that whenever we take a new mobile money service to market the same old sales mistake is made over and over again. The only difference is the local lingo in which it has been conveyed.
So if you were in a duka in 2010 in Kigamboni, Dar es Salaam, close to the ferry, or if you were in a farmasi in 2014 in Sukabumi, West Java, close to a busy market, chances are you would have heard mobile money sales people tell the same narrative to shop owners. “This new service called mobile money will soon be printing you money. All you have to do is a few registrations, a few cash-ins and a few cash-outs. Now see, for month one, you already have Tsh 100k / IDR 700k (US$ 50) in your pocket. By month six it will be US$ 300 equivalent and by month 12 easily US$ 600 equivalent. Look at your airtime sales results. Look at all the customers outside your shops. This will be a piece of cake. We will train you, we will even give you the equipment, a log book, branding – and voila, you are in business.”
Do our beaverish sales agents stop to do a 360 degree look (ok more like a 270 degree look) around the store? Does the trained eye look at not only the content of the stock on the shelves, but also at the total estimated value of the stock? Does it glance up to see the slow moving items at the top of the shelves? Before even speaking to the owner, does the sales agent do a calculation to see if the total estimated value of the stock even puts the shop owner in a position to have the minimum investment for upfront e-money purchase? What about minimum liquidity levels? Does the shop even have fast enough rotating stock?
> Posted by Jeffrey Riecke, Senior Associate, CFI
Typhoon Haiyan, one of the strongest tropical cyclones ever recorded, struck Southeast Asia in early November 2013, creating unspeakable devastation. In the Philippines alone, where the typhoon’s wrath was concentrated, over six thousand people lost their lives. One microfinance institution, ASA Philippines, sprang into action only a day after the typhoon hit, demonstrating not just microfinance’s social mission, but also how providers in the industry are evolving to support their clients through more than just credit.
Typhoon Haiyan affected 16 provinces where ASA Philippines had operations, spanning 72 branches and 104,708 active borrowers amounting to a loan portfolio of roughly 365 million Philippine Pesos (~US$7.5 million). Fast forward to the present, about two years later, ASA Philippines has almost a 99 percent collections rate and the institution is thriving. How did the institution manage this crisis? Hint: It wasn’t because of merciless collections practices.
The day after Haiyan hit, ASA Philippines’ president traveled to Tacloban, a city that was largely destroyed by the typhoon, to visit the local ASA Philippines office. For the staff, the president’s presence underlined the ambitious and important relief work ahead of them. Under normal operating circumstances, ASA Philippines’ offices are open 24/7, reflecting the institution’s motto of BWYC: Be with Your Clients. ASA Philippines works towards a culture of immediate response, during the typical day-to-day operations, and during times of tragedy. I recently spoke with a few ASA Philippines staff members and they drew a link between support for clients and client trust. Clients will remember the first person that helps them, I was told. This connection fosters trust and connection, which in turn supports efforts to repay loans.
> Posted by Saran Sidime, Operations Assistant, the Smart Campaign
West Africa is the second-fastest growing regional economy in Africa. Its GDP is more than double that of East Africa. However, its impact investing landscape doesn’t reflect this.
There are currently 45 impact investors active in the region, including 14 development finance institutions (DFIs) and 31 non-DFIs. Direct impact investments deployed in the region totaled $6.8 billion between 2005 and 2015. This is small relative to East Africa, which has over 150 investors and $9.3 billion in deployments on the books for roughly that same time period. Nevertheless, the investing trends in West Africa are encouraging, according to The Landscape for Impact Investing in West Africa, the third in a series of regional market landscaping studies published by the Global Impact Investing Network (GIIN).
The main barriers to impact investment in the region, according to the GIIN, include a lack of investment readiness among entrepreneurs and investees (in part due to difficulty obtaining bank financing), unpredictable policy environments, difficulty raising capital locally (among fund managers) compared to global standards, few exit examples, and macroeconomic and political instability. That is a truly daunting array of challenges. While in recent years there has been strong growth and investment in ecosystem actors such as incubators, accelerators, associations, and technical assistance providers, the ecosystem is not at sufficient scale to service the needs of the region.
> Posted by Elisabeth Rhyne, Managing Director, CFI
The following post was originally published last Friday on MasterCard’s Inclusion Hub.
When the Basel Committee speaks, everyone involved in the financial world pays attention. In their new report, it attempts to come to terms with financial inclusion.
As the global regulatory framework for banks, Basel III has no doubt featured in side conversations at Davos. Banking authorities around the world must make shifts to maintain the Committee’s concern with financial system stability, while opening the way for financial inclusion to advance. The new report is called “Guidance on the application of the core principles for effective banking supervision to the regulation and supervision of institutions relevant to financial inclusion.”
….If that title grabs you, you might be one of those people who can actually read the document’s carefully worded prose.
In response to the guidance, I would like to share four broad observations, not so much about the specific guidance – which is generally sound – but about the challenges involved in adapting the work of banking authorities to the new world of financial inclusion.
The guidance is uneven in its coverage of new types of financial inclusion providers
The report goes deep on microfinance. It discusses, but has not yet fully explored, digital financial services, big data and new forms of consumer credit.
The implicit assumption throughout the report is that the biggest financial inclusion challenge is credit risk coming from small lenders. This underplays the extent to which financial inclusion also involves large non-financial corporations like telecoms companies and major retail chains. The techniques these players deploy may require supervisory approaches different than those for smaller institutions.
Despite all the talk about fintech start-ups transforming how financial services are offered to the base of the pyramid, recent efforts by the government of Pakistan remind us that change can also be led from the top.
Pakistan has extremely low levels of access to affordable, diverse financial services. In the Center for Financial Inclusion’s (CFI) report By the Numbers, which assesses progress toward financial inclusion by 2020, Pakistan was identified as one of the countries predicted to fall short of the goal of universal account access by 2020. In Pakistan, only 13 percent of adults have accounts, compared with about 46 percent of adults in all of South Asia. Microfinance reaches less than 3 percent of the country’s population, and less than 7 percent of small and medium-sized enterprises (SMEs) use formal finance for working capital or investments. (To explore available data on the state of financial inclusion in Pakistan, check out the FI2020 Inclusion Visualizer.)
While financial inclusion in Pakistan remains low, recent trends suggest that the country is poised for rapid growth in the near future. Pakistan placed fifth in the Global Microscope 2015‘s list of enabling environments for financial inclusion, up six points from its 2014 score. This reflects an energetic, sustained effort by the government to strengthen the financial inclusion landscape of the nation.
Historically, there have been three major types of financial inclusion players in Pakistan: microfinance banks (MFBs), microfinance institutions (MFIs), and rural support programs (RSPs). While these three players continue to dominate the financial inclusion landscape in Pakistan, previously “benched” players have begun to play an increasingly important role.
> Posted by Center Staff
If you’ve ever been a tourist in a developing country, there’s a good chance you’ve partaken in a tour where you were brought to the intimate setting of an artisan, chef, or small-business owner’s shop. When you arrived at the shop, your tour guide introduced you to its proprietor, and the proprietor told you a little bit about the history and operation, and maybe even demonstrated a bit of the craft. After all this, you were asked if you’d like to buy anything. This model works. As a tourist, you want to be exposed to local cultures, you want unique experiences, and maybe you want to pick up a souvenir or two to bring back home. If you can accomplish all three, and get to know the person your purchase benefits, all the better.
But what if we could take this model one step further? After all, tourism is an enormous industry. Globally it accounts for roughly 5 percent of the world’s GDP and one in every 12 jobs. In Mexico alone, for example, international tourists spent roughly US$12 billion in 2011. If some of this capital could be used to create greater impact, the benefits would be huge.
En Via, an organization based in the southern Mexican state of Oaxaca, is attempting to achieve this by combining tourism, microfinance, and education. En Via offers tours of five largely indigenous communities in Oaxaca, where participants are given the opportunity to meet with local women who are farmers, artisans, vendors, chefs, and other small business owners. As a tourist you meet with the women and their families, learn about their livelihoods and communities, watch product demonstrations like the spinning of wool, taste freshly made foods, and, yes, make purchases if you’re so inclined. In turn, En Via uses the money collected in tourism fees to fund small business loans to the women who were visited during the tours.
En Via is structured so that 100 percent of a tourist’s fees go directly towards the loans of the women that they had the opportunity to meet. The loans range from US$100 to $250, and carry zero interest. To date, En Via’s client default rate is at less than one percent. Since it began offering loans in 2008, over 1,500 loans have been given out to almost 400 women. Funds repaid are applied towards En Via’s administrative costs and education programs.
> Posted by Carol Caruso, Senior Vice President, Channels & Technology, Accion
Peru’s pursuit of financial inclusion has set a standard, helping Peru capture the top ranking in the Economist Intelligence Unit’s Microscope for the last eight years. Accion’s Channels & Technology team, an advisory practice within Accion focused on digital financial services (DFS), recently returned from Lima, where we saw firsthand the exciting promise of digital payments in Peru.
Innovations in financial technology are important to promoting financial inclusion, and the Peruvian government has passed critical legislation and regulations that enable developers to design and launch new products.
With almost 80 percent of Peruvians lacking access to a bank account, it’s clear why Peru’s government has committed so many resources to advancing financial inclusion. The government has launched diverse interventions in the past five years, and in August 2015 published a National Strategy for Financial Inclusion that outlines a more coordinated and cohesive approach to an issue that affects millions of Peruvians. The new strategy aims to provide access and responsible usage of a transaction account to at least 75 percent of adults by 2021.
The National Strategy’s focus on digital payments could bring about even greater impact, particularly in the harder to reach areas of Peru. Despite the fact that 80 percent of Peruvians are financially excluded, roughly 65 percent have mobile phones. Recognizing this, the National Strategy focuses on connecting those who have phones to financial services through digital payments adapted to the needs of the population. Even as recent as last month, the Bank Superintendent provided new electronic money issuer licenses to three service providers: G-Money, Servitebca, and Jupiter. This type of market stimulation is great news for Peruvian consumers and the payments ecosystem.
> Posted by the Smart Campaign
Transparency sounds simple – in business, government, relationships, and most areas of life. Take the business of offering financial products and services. As a provider, you inform prospective and current clients of everything they need to know about your product. As a client, you use this information to make sound decisions about buying and using said product. Consequently, providers can claim full disclosure and hope to benefit from increased loyalty of clients. Clients have the information to make educated decisions and rest easy knowing exactly where that provider stands.
Similarly, in relationships, transparency (read: honesty) is always the best policy. The best practice is always to say everything that’s on your mind. After all, the truth will set you free… Except for maybe when your partner is already overwhelmed with information. Or when what you’re trying to share is incomprehensible. Or when your partner is trying to concentrate on something else. What I’m trying to get at is this: transparency may seem simple, but it’s not. Effective transparency provides information in a way that enables the person receiving the information to understand it and use it.
Inclusive finance providers need to hit the sweet spot – sharing the optimal amount of the most critical information with clients, in an understandable format, at appropriate times. To make matters more challenging, inclusive finance clients are often illiterate, poorly educated, or new to formal institutions.
The good news is that around the world, including in Mexico, the inclusive finance industry is hard at work to embed transparency effectively. In 2014, the Mexican government passed widespread financial reform that emboldened the role of the consumer protection agency, CONDUSEF, and made its rules mandatory for all credit institutions. CONDUSEF was enabled to issue and publicly publish recommendations to financial institutions. In the last year, CONDUSEF imposed important new regulations in areas of transparency and money laundering, and ended up revoking the operating permits of 1,449 non-regulated (SOFOM) institutions that did not meet the standards.